Monday, February 15, 2010


Bursting Eugene Fama's Bubble

More piling on the Efficient Markets Hypothesis today at
In a recent interview in the New Yorker, Eugene Fama, Chicago School economist and father of the efficient-markets hypothesis (EMH), defended his theory in light of the housing boom and crash. Fama's views on asset bubbles and business cycles stand in sharp contrast to the standard Austrian position. Although Chicago and Austrian economists are on the same side on many policy questions — particularly in their opposition to Keynesian solutions — Fama's interview reveals the large differences in their theoretical toolboxes.

I was reading Yale paper on commodities futures yesterday and thought the authors had a good take on EMH. The wrote that its impossible to beat the market based on publicly available information alone. I can accept that. That doesn't mean that entrepreneurs might not have knowledge and insight that others don't.
A better example than earthquakes is speciation and adaptation -- I.e. Darwin. Science can't give a deterministic prediction but it can give an after the fact explanation.

In was stunned by Fama's ignorance of recent economic events in the housing and mortgage finance industry.

It's amazing what ignorance you can get away with if you have tenure and an "elegant" formal "theory" which generates endless publications for academics.
Bob, you do understand that EMH says that *risk-adjusted* expectations of future prices equal current prices, ie, that prices are martingales under the pricing measure? Hasn't this been pointed out repeatedly to you at the mises blog? (I'd do so there, but alas, I appear to have been banned there.)
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